How did Florida tax a production company's master advertising videos and the additional copies sold to customers?

Plain-English summary

The production company's use of each retained master video was taxable only on the value of its tangible elements, while the full charge for additional customer copies was taxable unless purchased for resale.

The company created video simulations of developments for advertising and promotional use. Customers paid for animation, modeling, scripting, voice-over, music, editing, and other creative services, while the company kept the master and used it to make copies.

Florida treated the company as a motion-picture or television studio and the retained tape as a master video. The artistic, copyrightable, and other intangible contributions were excluded from the master's use-tax value; the blank tape and other tangible components remained taxable. When copies were sold, tax applied to the entire charge, including handling and mailing—not merely the physical tape cost.

What this means for you

Master-production treatment and copy-sale treatment were different. Keep support for tangible component costs and collect tax on the full copy charge unless a valid resale transaction applies.

Common questions

Q: Was the entire master-production contract taxable? No, under the presented facts.

Q: Was use of the retained master completely exempt? No. Its tangible elements were taxable.

Q: Were handling and mailing for copies taxable? Yes.

Q: Did Florida decide the advertising-agency exemption? No, because the company had not supplied the required facts.

Citations and references

• Fla. Stat. §§ 212.05(1)(a)–(b) and 212.08(12)(a) and (b)2., 4., and 7. — master-video sales and use
• Fla. Stat. § 212.08(7)(v) — professional and personal service exemption considered in the ruling
• Fla. Admin. Code r. 12A-1.085(1)(b)–(c) — master videos and additional copies
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-081

Original ruling text

SUMMARY
QUESTION 1: Is the production, and use by the producer for
the purpose of making copies, of a master video tape

subject to use tax and to what extent?

ANSWER 1 - Based on Facts Below: Because the producer is a

motion picture or television studio and produces the tapes
for showing on screen or television, the use of the master
tapes is subject to use tax only to the extent of the

tangible elements used.

QUESTION 2: To what extent are the sales of copies of the

master tapes subject to tax?

ANSWER 2 - Based on Facts Below: The total charge that a

motion picture or television studio makes to its customers
for the sale of additional copies of tapes, including any
charge for handling and mailing, is taxable, unless the

copies are being purchased for resale.

Jan 04, 2000

Re: Technical Assistance Advisement 99A-081
Sales & Use Tax - Master Videos
Sections 212.05, 212.05(1)(a), (b), 212.08(7)(v),
212.08(12), 212.08(12)(a),(b)2., 4., 7., F.S.
Rule 12A - 1.085(1)(b), 1.085(1)(b)2., 1.085(1)(c), F.A.C.
XXX (Production Company)
F.E.1. # XXX

Dear:

This is in response to your letter dated XXX, which requests the
Department to issue a Technical Assistance Advisement ("TAA")
concerning the above referenced matter. Your letter has been
carefully examined and the Department finds it is in compliance

with the requisite criteria set forth in Chapter 12-11, F.A.C.

This response to your request constitutes a TAA and is issued to

you under the authority of section 213.22, F.S.

Issue Presented

Whether the use of a master video for advertising, under the

facts presented, is taxable pursuant to section 212.05, F.S.

Discussion of Facts

The Production Company contracts with its customers to prepare

video tape simulations of developments.

The customers pay Production Company fees for the video tape
production, but the Production Company keeps the master tape.
Copies of the master tape are made and sold to customers for
advertising or promotional use. When the copies are sold, the
Production Company collects tax on the "actual charge for the
tape." However, no tax is collected on the contract for the

production of the master tape.

An example of Production Company's contract is attached to its
request for a Technical Assistance Advisement. All charges
recited are for animation, production, and creative services.
These include modeling, scripting, voice over, music, and
editing. There is no separate charge for materials or supplies

used, such as the blank tape that becomes the master video tape.

Production Company's position is that production and use of the
master video tape is exempt from tax by section 212.08(12),

F.S., or alternatively, section 212.08(7)(v), F.S.

Discussion and Analysis of Law

"While doubtful language in taxing statutes should be resolved

in favor of the taxpayer, the reverse is applicable in the

construction of exceptions and exemptions from taxation."

United States Gypsum Company v. Green, 110 So.2d 409, 413 (Fla.
1959).

It is not disputed that, but for an applicable exemption, the

sale or use of master video tapes are subject to tax as tangible
personal property. Section 212.05(1)(a), (b), F.S. However,
section 212.08(12), F.S., provides a partial exemption from the
tax imposed by chapter 212. Under that section, there is no tax
on the gross receipts from the sale or use of master video
tapes, except that the amount paid to motion picture or
television studios for the tangible elements of master video

tapes is taxable. s. 212.08(12)(a), F.S.

A video tape is a master if it is used by the motion picture or
television production industry to make reproductions for showing
on screens or television. See, Rule 12A-1.085(1)(b), F.A.C.

The video tape produced by Production Company, represented as
being used only for the purpose of making copies, is a master
video tape as defined by statute, s. 212.08(12)(b)2., F.S., if

it is used by the motion picture or television production

industries. See, Rule 12A-1.085(1)(b), F.A.C.

“Motion picture or television production industry’ means any
person engaged in an occupation or business, for a livelihood or
for a profit, of making visual motion picture or television

visual images for showing on screen or television for...
advertising... purposes." s. 212.08(12)(b)7., F.S. See also,
Rule 12A-1.085(1)(b)2., F.A.C. Production Company is in the
business of making visual images for its customer's advertising
or promotion. Therefore, Production Company is in the motion

picture or television production industry.

Amounts paid to motion picture or television studios are
excepted from the exemption, to the extent of the tangible
elements of a master video tape. Section 212.08(12), F.S. In
other words, the amount of money paid to a motion picture or
television studio for the blank tape, and other tangible
components, by a person in the motion picture or television
production industry, is taxable. See also, Rule 12A-1.085(1)(b),
F.A.C.

Is Production Company a motion picture or television studio?
Production Company is in the business of producing video tapes.
As such, its place of business is a facility in which film or

video tape productions or parts of productions are made. Its

facility contains the equipment and personnel it requires for
that purpose. s. 212.08(12)(b)4., F.S., and see, Rule 12A-
1.085(1)(b)4., F.A.C. As such, Production Company is a "[mJotion

picture or television studio," as that term is defined.

Tax is imposed by the construction of chapter 212, F.S., that is
stated in rule: "[T]he measure of tax with respect to... the

sale or lease of... master video tapes by motion picture or
television studios to the motion picture or television

production industry... is limited to the tangible elements."
(Emphasis supplied). See, Rule 12A-1.085(1)(b), F.A.C. Also
see, and compare, s. 212.08(12)(a), (b)2.,4.,7., F.S.

The master video tapes are not sold, but are used by Production
Company to make reproductions. However, section 212.05(1)(b),
F.S., imposes a use tax "[a]t the rate of 6 percent of the cost
price of each item or article of tangible personal property when
the same is not sold but is used, consumed, distributed, or

stored for use or consumption in this state."

Production Company produces the master video tape, then uses the
master video tape itself. Use tax is imposed on the use of the
master video tapes to the extent of the tangible elements used.

If the master video tape was sold to a customer or another

person to make the reproductions, it would be subject to sales

tax. If the Production Company's customer has the right to

possess the master tape, the transaction would be subject to

sales tax. s. 212.05(1)(b), F.S.

Is the video tape produced by Production Company made "for
showing on screen or television?" s. 212.08(12)(b)7., F.S.
Stated another way, does the phrase "for showing on screen or
television" mean that the video must be produced for
broadcasting by a station or over a network? The subsection
includes "television visual images for showing on... television
for theatrical, commercial, advertising, or educational
purposes." Id. It is common for educational tapes to be shown
only in a classroom setting - and not generally broadcast. That
is also often true of theatrical productions, and may similarly

be true for commercial and advertising productions.

Video images on a cassette are not viewable without a television
or a screen. Also, in this case, the video tape could be
broadcast on television. The particular use of the video tape

is determined by the customer.

It is clear that this business is in the class of businesses for
which this partial exemption was enacted. The statute does not
impose a specific broadcast requirement, and even considering
that statutory exemptions are construed against the taxpayer,

United States Gypsum v. Green, ibid., a requirement that is not

explicit in the statute should not be implied in this case.

Therefore, the copyrightable and artistic contributions, and

other intangible elements, are not included in the taxable value
of master tapes sold or used by members of the motion picture or
television production industry. See, Rule 12A-1.085(1)(b),

F.A.C. Under these particular circumstances, and the rule, the

master video tapes are taxable only on the "tangible elements."

The Production Company states that "[w]hen copies are sold, the

tax is remitted on the actual charge for the tape." (Emphasis

supplied.) However, "[t]he total charge that a recording studio
or motion picture studio or television studio makes to its
customer for the sale of additional copies of tapes, records,
films or video tapes, including any charge for handling and
mailing, is taxable, unless purchased for resale." See, Rule
12A-1.085(1)(c), F.A.C. Therefore, Production Company should
collect sales tax on the total charge it makes when it sells

copies of the video tapes.

Production Company also takes the position that its services are
professional or personal, and so exempt from tax under section
212.08(7)(v), F.S. Because the exemption for master video tapes
is partial, and the exemption for professional and personal
services is complete (both the service and the tangible personal
property would be exempt if s. 212.08(7)(v), F.S., applies),

this position must be considered.

Applying the rule of construction that specific provisions
control over general, section 212.08(12), F.S., dictates the

exempt status of master video tapes. Bryan v. Landis, 106 Fla.

19, 24 (Fla. 1932), Kiesel v. Graham, 388 So.2d 594, 595 (Fla.

1st DCA 1980). That section specifically addresses the tax
treatment of the tangible personal property and the services
associated with the production of master video tapes. If the
provisions in section 212.08(7)(v), F.S. were equally
applicable, the specific exemptions in s. 212.08(12), F.S.,
would effectively have no meaning - a result that is always
avoided, if possible. Snively Groves, Inc. v. Mayo, 135 Fla.
300, 303 (Fla. 1938)

Finally, chapter 99-269, Laws of Florida, potentially affects

the result here. This provision passed the legislature during
this last legislative session, and became law on June 8, 1999.
It exempts "[t]he sale of advertising services by an advertising
agency to a client, [as well as] items of tangible personal
property such as photographic negatives and positives,
videos,... and the services used to produce those items, if the
items are... [s]old by an advertising agency to its clients in

the performance of advertising services for the clients, whether
or not the charges for these items are marked up or separately
stated." S.B. 1330, s. 1 (1999). The effective date of this
change in law is July 1, 1999, but it is retroactive with regard

to uncollected taxes. Id.

Under the bill, a firm that is primarily engaged in the business

of providing advertising materials and services to its clients

is an advertising agency. Id. It is not clear that Production
Company is primarily engaged in the business of providing
advertising materials and (advertising) services to its clients.
(Emphasis, word supplied) However, Production Company is not
precluded from asserting that it is an advertising agency, and
that the master tapes are totally exempt. Because Production
Company has not asserted that it is an advertising company, and
has not addressed the factual requirements related to this

issue, the Department cannot consider the effect and application

of this change in law at this time.

CONCLUSION

The amount paid to Production Company under the contract, copy

attached, to produce a master video tape, is excluded from tax

under the facts presented. When copies of the video are sold,
tax is imposed on the sales price - the entire charge collected

for the copies, and not just the "actual charge for the tape."

This response constitutes a Technical Assistance Advisement
under section 213.22, F.S., which is binding on the Department
only under the facts and circumstances described in the request
for this advise, as specified in section 213.22, F.S. Our
response is predicated upon those facts and the specific
situation Summarized above. You are advised that subsequent
statutory or administrative rule changes or judicial
interpretations of the statutes or rules upon which this advice

is based may subject similar future transactions to a different

treatment from that which is expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., which are subject to disclosure to the public under the
conditions of section 213.22, F.S. Confidential information
must be deleted before public disclosure. In an effort to
protect confidentiality, we request you provide the undersigned
with an edited copy of your request for Technical Assistance
Advisement, the backup material and this response, deleting
names, addresses, and any other details which might lead to
identification of the taxpayer. Your response should be
received by the Department within 15 days of the date of this

letter.

Should you have any further questions concerning this matter,

please do not hesitate to contact me.

Sincerely,

Robert D. Heyde
Senior Attorney
Technical Assistance & Dispute Resolution

Control #37921

Statutes, rules and cases may be viewed on the Department's web

site, http://sun6.dms.state.fl.us/dor/.